US private equity titan Warburg Pincus continues to be bullish on early-stage investments in China’s property sector as it targets new economy assets or “tech-enabled businesses” in the country.
“Our approach is to start earlier in the game so that we have more time to navigate the landscape and spend more time with potential partners or pick the best entrepreneurs before the space becomes more competitive,” Warburg Pincus’s head of China real estate, Ellen Ng, said in a conference on Tuesday.
Ng, who heads a team of industry professionals from Hong Kong, however, said it is not that the firm prefers adopting a “venture capital approach” in its real estate playbook; its investment decisions are based more on the secular trends and underlying demand drivers that it could potentially capture in a company.
“Startup platforms can be quite scalable, even in the early stages. It’s more about the proof of concept. And, we have the benefit of having long-term equity capital that allows us to take on higher equity risks,” Ng added.
Warburg Pincus has been actively making early- and growth-stage investments in Greater China’s rental apartment companies in the past decade. The investment powerhouse injected $181 million into Weave Living, a Hong Kong-based co-living accommodation operator which targets young professionals, in 2018 — a year after it was founded.
That same year, it led a couple of Series A financing rounds for Shanghai-based Vlinker, which raised $200 million; and Chinese home rental apartment provider Ziroom in a $621-million deal that anointed it to unicorn status. According to a March Bloomberg report, Ziroom is reportedly eyeing a $1 billion initial public offering on the Hong Kong Stock Exchange.
In logistics, Warburg led a Series A funding round totalling $700 million for China’s JD Property alongside Singapore’s private equity firm Hillhouse Capital in March 2021 and a Series B financing round that raised $800 million a year later.
In later stages of its investments, Ng added that Warburg would bring in other capital partners “to play at their respective range” where they can find the risk-reward profiles they are looking for. For instance, Weave in August 2022 acquired a HK$275 million ($35 million) apartment project in Hong Kong’s Mid-Levels in a joint venture with LaSalle Investment Management, a Chicago-based real estate investment manager.
Warburg made the first investment in China’s realty market in 2005 when residential properties accounted for the largest chunk of its portfolio in the country, according to Ng. It had since evolved to grow its retail portfolio to around 80%, with residential sales contributing about 20% of its portfolio a decade later. Now its assets in the new economy sector have grown to approximately 75% of its real estate portfolio while it is working to branch out into other markets to form a more diversified portfolio.
In December 2021, Warburg closed $2.8 billion for its inaugural Asia-focused real estate fund, which is the second largest of its kind after Blackstone’s dedicated vehicle for Asian real estate at the time. The private equity firm is adhering to its investment mandate in investing in asset-level, technology-enabled or technology-driven real estate opportunities in the region.